Commercial Buy-to-Let Mortgage

A commercial buy-to-let mortgage is finance secured against a commercial property which is, or will be, rented to an unrelated business tenant.

The rental income received from the tenant is normally expected to support the mortgage payments and the wider costs of owning the property.

A commercial buy-to-let mortgage could be used to finance:

• Shops and retail units
• Offices
• Warehouses
• Industrial units
• Factories and workshops
• Restaurants and cafés
• Pubs and licensed premises
• Medical or dental premises
• Nurseries
• Hotels and guest houses
• Storage facilities
• Mixed-use properties
• Other eligible commercial premises

Commercial properties and tenants carry different levels of risk. The type of business operating from the premises can therefore affect the lenders available, the required deposit and the interest rate.

The mortgage is secured against the commercial property. You or your company owns the building, while a separate business occupies it under a commercial lease and pays rent.

The lender will normally consider whether the rent is sufficient to cover the mortgage payments. It may also assess your personal or company income, assets, liabilities and experience.

Commercial mortgages are often individually priced rather than offered through a single standard range available to every applicant.

The terms available may depend on:

• The property type
• The purchase price or valuation
• The amount you want to borrow
• The deposit
• The expected rental income
• The tenant’s financial strength
• The length and terms of the lease
• Your experience as a landlord
• Your credit history
• Whether the property is already occupied
• The proposed ownership structure

If the application is approved, the lender registers a legal charge against the commercial property. You must maintain the agreed payments throughout the mortgage term.

A residential buy-to-let mortgage is used to finance a house or flat rented to residential tenants.

A commercial buy-to-let mortgage is used for business premises rented to a commercial tenant.

The main differences can include:

• The type of property
• The type of tenant
• The form and length of the lease
• How the property is valued
• How rental income is assessed
• The size of the deposit
• The mortgage term
• The lender’s underwriting process
• The legal and valuation costs
• The applicable tax treatment

Residential buy-to-let properties are often valued by comparing them with similar local homes. Commercial properties may be valued partly by reference to the rent, lease and investment yield.

A commercial lease can also be longer and more complex than a standard residential tenancy agreement.

Commercial mortgage applications require a detailed understanding of the property, tenant, lease and applicant.

MortgageKey can review:

• The property you want to purchase or remortgage
• The purchase price and estimated value
• The commercial use
• The tenant and its financial position
• The existing or proposed lease
• Rental income
• The deposit and its source
• Your personal or company finances
• Your property experience
• Your credit history
• Your preferred mortgage term
• The proposed repayment method

We can then search for lenders whose commercial investment criteria may fit the application and explain the likely rates, fees, deposit requirements and information needed.

All commercial mortgages are subject to status, valuation, eligibility and the lender’s criteria.